Troubling Trend for Some Telecoms
While the big wireless players -- AT&T (NYS: T) , Verizon (NYS: VZ) , and Sprint Nextel (NYS: S) -- have been one-upping each other for years over who has the coolest phones, the hottest gadgets, and the fastest networks, the second-tier carriers, MetroPCS (NYS: PCS) and Leap Wireless (NAS: LEAP) , have generally kept a lower profile.
Although the two groups do compete, it's on a different scale. MetroPCS's and Leap's potential subscriber footprints aren't as big as the bigs, and they are going after a different market. They are angling for the smaller fry, the prepaid monthly customer. Not as profitable as the whopper caught on a two-year contract hook, but a customer just the same.
So there's been a kind of an easygoing-but-don't-get-too-comfortable detente between the majors and the minors. Until now. The small regional wireline carriers have decided to move into the second-tier wireless turf, and they are doing it with the help of the big boys.
Last February, CenturyLink (NAS: CTL) agreed to become a reseller of Verizon's wireless services. That means it can not only give its customers the choice of buying an iPhone, but it can also offer up Verizon's extensive 4G LTE network. And it can do all that without having to make major investments in building its own wireless infrastructure.
Frontier Communications (NYS: FTR) went the same route earlier this month. The company signed a three-year deal to resell AT&T wireless services to its subscribers. This gives Frontier the same advantages that CenturyLink gets with its partnership. In addition, both companies can now bundle their new wireless services with their wireline voice and Internet offerings. The convenience that a single bill gives makes for a stickier customer, one less likely to move over to another carrier.
And on Monday, Louisiana-based wireline carrier EATEL struck a deal to offer its customers 4G connectivity through LightSquared's LTE network. EATEL already has a fiber-to-the-home network, so this agreement could allow it to offer a quadruple-play (voice, Internet, video, and wireless) package. Getting LightSquared's LTE network up and running has problems. The radio-frequency spectrum it plans to use is so close to the frequencies the Global Positioning System uses that the GPS industry is trying to ban LightSquared's network.
How MetroPCS and Leap will react to this space invasion remains to be seen. I think it will definitely have an impact, though, and not a good one. The ability to offer faster networks and the most sought-after mobile devices are big advantages for the wirelines. I like the opportunities these deals give them. CenturyLink, in particular, is a company I have started to feel warmer toward. So CenturyLink will get an Outperform from me in Motley Fool CAPS.
Add the above companies to the Fool's My Watchlist:
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- Add Frontier Communications to My Watchlist.
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At the time this article was published Fool contributorDan Radovskyowns shares of AT&T and Frontier. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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